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North American natural gas futures prices for August moved closer to $7.00/MMBtu this week as summer heat began to settle in.
The August New York Mercantile Exchange contract climbed 52.6 cents day/day on Wednesday to close at $6.689/MMBtu. September rose 56.8 cents to $6.589. This is basically in line with where prices were for Mexico buyers of natural gas last week.
While U.S. LNG plants are running at full capacity, pipeline imports of U.S. gas into Mexico have slipped recently as domestic production inches up.
According to Wood Mackenzie, Mexico pipeline imports in June were flat year/year at 6.3 Bcf/d. “And, so far in July, they are even lower at roughly 6.2 Bcf/d,” analyst Ricardo Falcón told NGI’s Mexico GPI.
NGI figures had pipeline flows to Mexico reaching 5.735 Bcf on Thursday, with a 10-day average of 5.581 Bcf/d. These figures do not include nonpublic intrastate transactions.
Imports were dropping despite Mexican gas burns hitting 5.3 Bcf/d in June, a high for the year. Falcón said a minor rebalancing of supply was taking place. Mexican dry gas output was up 8% in June to 2.9 Bcf/d, part of a gradual trend of higher output seen since late 2021.
“This robustness is translating into stronger gas-to-gas competition,” Falcón said.
Infrastructure Party
On Tuesday, Mexican President Andrés Manuel López Obrador met up with President Biden in the White House, and energy was high on the agenda.
The trip was accompanied by numerous announcements of U.S.-backed natural gas export projects in Mexico that would serve the geopolitical purpose of helping wean Asian and European markets off Russian gas.
On his trip, López Obrador touted the “more than 1,000 kilometers of natural gas pipelines” along the border to transport gas sourced from Texas.
Houston-based ConocoPhillips on Thursday clinched a tentative agreement for long-term offtake and a 30% equity stake in Sempra Infrastructure’s proposed Port Arthur liquefied natural gas project near Houston. ConocoPhillips said the deal meant it could also acquire offtake and ownership in Sempra’s Energia Costa Azul LNG Phase 2 in Baja California in Mexico.
A unit of Shell plc also this week signed a sales and purchase agreement for 2.6 million metric tons/year (mmty) of offtake from Mexico Pacific Ltd. LLC’s (MPL) LNG export terminal on Mexico’s Pacific Coast.
MPL COO Sarah Bairstow told NGI that the final investment decision on the first two trains was “imminent.” She saw the project delivering gas to Asian markets by 2026, with a combined liquefaction capacity of 14.1 mmty. She estimated there was room for 40 mmty of Mexican LNG projects delivering gas to Asian markets.
New Fortress Energy also recently announced commercial agreements with Mexico’s state energy companies Petróleos Mexicanos (Pemex) and Comisión Federal de Electricidad (CFE) to export LNG sourced from Mexico and the United States.
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Sistrangas
Mexico’s Sistrangas five-day line pack average slumped this week, hitting 6.345 Bcf on Wednesday (July 13). The line pack is below the optimal range of 6.86-7.29 Bcf needed to guarantee sufficient pressure in the system. Line pack has been a persistent problem all year on the Sistrangas.
Demand on the Sistrangas on Wednesday was 4.553 Bcf, up from 4.444 Bcf a day earlier. Mexico gas production fed into the system was 1.294 Bcf. Southeast production dominated the total, with 728 MMcf from the region injected into the pipeline system.
According to calculations from consultancy Gadex, pipeline imports from the United States into the Sistrangas were 3.277 Bcf on Wednesday, versus 3.295 Bcf a week earlier. Liquefied natural gas imports into the Sistrangas were 36 MMcf.
In regulatory news, this week a federal judge temporarily suspended a rule change by Mexico’s Comisión Reguladora de Energía (CRE) requiring gas users on the Sistrangas to source fuel from one of the two state-owned energy companies.
Mexico Cash Prices
In Mexico, NGI natural gas cash prices rose about a dollar week/week. On Wednesday, Los Ramones fell 22 cents day/day to $6.823. Monterrey via the Mier-Monterrey system slipped by 21.7 cents to $6.603.
Tuxpan in Veracruz via Cenagas saw the spot price fall 21.9 cents to $7.236.
In the West, the Guadalajara price fell 19.6 cents to $7.425. Farther north in El Encino, prices via Tarahumara were $6.919, 17.5 cents lower than the previous day. On the Yucatán Peninsula, the cash price at Mérida was $8.025 on Wednesday, down 21.8 cents.
U.S. Gas Storage
On Thursday, the U.S. Energy Information Administration (EIA) reported a 58 Bcf injection into natural gas storage inventories for the week ending July 8. The print was in line with expectations.
South Central storage levels were overall flat. This included a 12 Bcf withdrawal from salts and a 12 Bcf build in nonsalts, according to EIA. Until Mexico develops storage capability, this is the storage system most readily available to the country.
For the week ended July 1, total working gas in the South Central region stood at 890 Bcf, down from 993 Bcf for the same time one year ago. The figure was also 133 Bcf lower than the average 1,023 Bcf in storage for the same day between 2018-2022, EIA said.
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